8 tips to help you trade crypto responsibly
Trading cryptocurrency properly necessitates the management of several facets of your trading activity. It does not begin and finish with the purchase or sale of a stock. Try to include as many of the suggestions below as you can into your daily routine. It may appear to be a lot of advise, but it will help you improve your trading skills.
1. Secure your trading account and wallet
The finest thing you can do before you start trading is to safeguard your account. No matter how carefully you plan your transactions, it’s all for naught if your funds, account, or password are compromised.
There are several methods for accomplishing this, including the use of two-factor authentication (2FA), the creation of a strong password, and the whitelisting of withdrawal addresses.
The same requirements apply to your private key if you also utilize an external cryptocurrency wallet. You should never reveal your private key or seed phrase with anyone, just like you should never share your bank account information. You can choose a digital wallet from our list of suggested Binance Smart Chain wallets based on your demands and level of security. If you have the option, you can keep extra funds safe by storing them on a hardware wallet.
2. Create a trading plan
Making a plan and sticking to it is the greatest approach to avoid allowing your emotions to interfere with your trade. This manner, unexpected wins, losses, rumors, or FUD will not interfere with your decision-making. So, what goes into a trading strategy?
Your plan should include the types of trades you want to make, the trading conditions, and your trading goals. What your limitations are will be determined by your risk profile and trading style. You should make your trading plan with a clear mind and be willing to follow through on what you’ve determined subsequently. Your trading strategy may comprise the following elements:
- How much, if any, leverage you wish to utilize
- Specific trade entry and exit pricing
- The maximum investment amount expressed as a percentage of total capital
- The extent to which your portfolio is diverse
- Your cryptocurrency asset allocation
- When should you stop trading? (time, volume, etc.)
- Maximum monetary losses
- The goods or assets you deal in
3. Use stop-limit orders
Stop-limit orders are a simple way to get more control over your trade. You can’t always be staring at a screen, and with cryptocurrency being so volatile, you can end yourself with unexpected losses. Leaving big sums of cryptocurrency unprotected against volatility is not a responsible approach to trade. Once you’ve established a trading strategy, you can easily keep to it by using stop-limit orders.
Assume you bought 1 Bitcoin (BTC) for $15,000 (US dollars) and the price of Bitcoin has now risen to $40,000. You want to ensure that if the price drops, you will not sell for less than $30,000. This will result in a $15,000 profit for you. You can automate this by placing a sell stop-limit order.
You begin by setting the stop price to $32,000. This is the price at which your limit order will be activated. You then set the limit price to $30,000, implying that if the stop price is achieved, your 1 BTC will sell for $30,000 or more.
Your stop-limit order has the best probability of filling if there is a gap between the stop price and the limit price. If there is no gap, the market price may go below your maximum price without satisfying your order.
It’s important to note that a stop-limit order isn’t always guaranteed to fill, but when it does, you’ll always get the price you specified or higher.
4. Do your own research
Let DYOR serve as the starting point for your investigation. This is done to validate and double-check any information you come across. This advise applies to both trading and investing in coins on exchanges as well as using Decentralized Finance (DeFi) tools. Only you know your risk tolerance and what is appropriate for your portfolio. Before you begin investing or trading, make sure you understand where you’re putting your money.
5. Diversify your portfolio
If you decide to develop a trading strategy, you should consider portfolio diversification to reduce risk. Having only one or two assets in your portfolio is riskier. As a result, you can diversify your holdings by investing in various assets from various asset classes.
In cryptocurrency, you might start by determining your asset allocation. You might invest in DeFi liquidity pools, staking, derivatives, stablecoins, and altcoins. You are less likely to suffer large losses if you limit your exposure to a single crypto class. For example, you may suffer a temporary loss from a liquidity pool in which you are invested but offset your losses via staking winnings.
Then you can diversify within these various asset types. To lower your overall portfolio risk, you might own BUSD, USDT, and PAXG as stablecoins. However, these are just a few examples. There are a variety of reasonable strategies to plan out your cryptocurrency strategy.
6. Avoid FOMO
Fear of Missing Out (FOMO) is a prevalent emotion experienced by many traders. However, you must exercise caution in how it affects your behavior. Fear of missing out on an investment opportunity can lead you to abandon your limitations and trading strategies in favor of impulsive decisions. We now have unprecedented access to information via the internet, social media, and other communication channels, making us all vulnerable.
While it is possible to investigate and uncover wonderful investing opportunities online, you should always be wary of shilling. Users with nefarious financial objectives will promote their coins or projects regardless of their true worth. Shillers will exploit FOMO to manipulate traders’ emotions. If you start to feel like you’re missing out on an opportunity you’ve never heard of before, take the time to thoroughly examine the project before putting your money at danger.
FOMO can be caused by a variety of factors. Recognizing them can assist you in identifying its triggers.
- Social media: rumors, fake information, and shillers can be found on Twitter, Telegram, Reddit, and other social networks. DYOR is always a good idea. Many influencers are paid to promote projects and altcoins, and scammers may use your FOMO to steal your money.
- Gains: If you’ve been on a winning streak, it can be tempting to be irresponsible with your profits. You could also be overconfident in your abilities and make poor decisions as a result. Even if you’ve made a good profit, this can increase your FOMO for additional “huge” investment chances.
- Losses: As you try to recoup your losses, your FOMO may worsen. Because of FOMO, you may even enter a trade, exit after losing money, and then reenter the position. Both of these can result in considerably greater losses.
- Rumors and gossip: Hearing information from other traders or the internet might make an investment appear appealing. Rumors, investing advice, or suggestions for a popular cryptocurrency, on the other hand, should never be used in place of thorough investigation and analysis.
- Volatility: Significant price movements in either direction create opportunities for profit. It’s easy to get carried away in the cryptocurrency market, whether you’re buying and hoping for a price increase or shorting the market in a slump. You may also consider a negative market as a favorable time to invest, but you may wind yourself catching a falling knife.
7. Understand leverage
Borrowing funds on margin or futures to achieve higher gains can sound appealing. However, there is a chance of getting liquidated and losing all of your capital quickly, as your losses are magnified. If you keep within your bounds, liquidation isn’t always a terrible thing. However, losing more than you intended or putting too much money at risk is not considered responsible trading. Make sure you understand how leverage works before you begin utilizing it.
You may have seen leverage represented as a multiplier, such as 10x, which multiplies your initial capital by ten. $10,000 multiplied by ten offers you $100,000 to trade with, with your initial money utilized to cover your losses. When your capital is depleted, the exchange will liquidate your position.
Trading with leverage can be used carelessly. It carries a substantially higher risk, therefore make sure to thoroughly research Coin-Margined Futures and USDT-Margined Futures to properly comprehend the hazards.
8. Use a Cooling-Off Period
You can use the Cooling-Off Period to keep to your trading plan and ensure that you only trade within your financial means. You can choose to lock your account for up to a month by enabling the functionality. Once you’ve activated the Cooling-Off Period, you can’t turn it off until the period runs out.
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